On 6 January 2025, the Administrative Council of Tax Appeals (CARF) ruled that ICMS (Tax on the Circulation of Goods and Services) tax incentives granted by states could be excluded from the calculation base of the Corporate Income Tax (IRPJ) and the Social Contribution on Net Profit (CSLL). This is contingent on the proper establishment of fiscal incentive reserves within equity, adhering to the stipulations of Article 30 of Law 12.973/2014, reinforcing the position upheld by the Superior Court of Justice (STJ).
This ruling benefits taxpayers by confirming that state ICMS tax incentives, classified as investment subsidies, should be excluded from the IRPJ/CSLL taxable base once fiscal incentive reserves are properly established. It also eliminates the need to demonstrate a counter-benefit for receiving these incentives, thereby challenging the earlier stance of the Brazilian Federal Revenue.
Highlighted below are the key practical implications and changes for businesses and taxpayers:
Accordingly, it should be emphasized that the decision was highly favorable to taxpayers. The adjudicating body confirmed the interpretation of Complementary Law (LC) 160/2017, aligning with the Superior Court of Justice (STJ) and resolving interpretative conflicts between the agencies. Additionally, it established that all state ICMS benefits are considered investment subsidies and forbade the imposition of any requirements beyond those explicitly specified in the law.
²ICMS is a state tax with rates that vary according to the legislation of each federal unit. It applies to sales and services and covers the circulation of goods, transportation, communication services, and other general provisions of goods. Fiscal benefits granted by states may include exemptions, reductions in the tax base, and presumed credits.
Glossary:
CARF (Administrative Council of Tax Appeals) – A Brazilian administrative court that handles disputes related to federal taxes, including decisions on appeals against tax assessments made by the Brazilian Federal Revenue.
ICMS (Tax on the Circulation of Goods and Services) – A state tax in Brazil on the circulation of goods and services, including telecommunications and transport services, which varies by state.
IRPJ (Corporate Income Tax) – A tax imposed on the income of corporations in Brazil.
CSLL (Social Contribution on Net Profit) – A tax on the net profits of corporations in Brazil, aimed at funding social security.
Fiscal Incentive Reserves – Reserves created within a company’s equity to account for tax incentives, which must be properly established as per specific legal requirements to ensure tax benefits.
Law 12.973/2014 – Brazilian legislation that regulates tax on corporate profits, among other tax-related matters.
STJ (Superior Court of Justice) – One of the highest courts in Brazil that handles non-constitutional federal appeals.
Investment Subsidies – Financial incentives provided to stimulate investment, typically in the form of tax reliefs or credits.
Complementary Law (LC) 160/2017 – Brazilian legislation that addresses national tax conflicts and regulates how fiscal incentives should be treated across different states to harmonize tax benefits.
COSIT (General Coordination of Taxation) – The body responsible for issuing normative rulings and clarifications on tax matters in Brazil.
Normative Rulings COSIT 11/2020, 15/2020, 11/2025 – Specific guidelines issued by COSIT that interpret and clarify tax legislation, affecting how certain tax laws are applied and understood.
Profit Reserves – Accounts within a company’s equity where profits are set aside for specific purposes, including compliance with fiscal incentives requirements.
Paragraph 4 to Article 30 of Law 12.973/14 – An amendment that provides additional clarity and legal backing for the treatment of ICMS tax incentives as investment subsidies.
